LUMBER DISPUTE SHOWS NAFTA IN ACTION

[MDOLAN <mdolan@citizen.org>]

  LUMBER DISPUTE SHOWS NAFTA IN ACTION
  By Rich Azar
  
  The Clinton Administration's quest for "fast-track"
  approval to expand the North American Free Trade
  Agreement into South America should be delayed until
  existing mechanisms for resolving trade disputes are
  improved to protect American interests, according to
  some NAFTA critics.
  
  "Fast-track" authority disallows time consuming but
  potentially corrective amendments to a proposed bill.
  Congress is unlikely to take up fast-track authority
  this year, but is almost certain to be on the '98
  calendar, according to the respected financial
  publication "The Kiplinger Washington Letter." The
  president has been without fast-track authority since
  1994.
  
  Meanwhile, a bitter and ongoing trade dispute between
  U.S. lumber yards and a Canadian lumber cartel has
  underscored what NAFTA opponents consider to be the
  agreement's pernicious influence on American sovereignty.
  
  Some small and medium-sized American lumber distributors
  claim they cannot speak out publicly on the issue of
  so-called "phantom freight" subsidies, which alledgedly
  harm American consumers, for fear of being ruined.
  "Would-be whistle blowers have been cowed, cornered and
  intimidated," according to the president of one affected
  American lumber firm. The source, who demanded anonymity,
  said that in order to prove the alleged fraud. "The
  American lumber distributors are obligated and would
  necessarily have to disclose their purchase order,
  transaction date, etc. to the Canadian sawmill. The mills
  would boycott them, quote them high prices, and sell
  their more desirable lumber items to the American whistle
  blower's regional competitors...which could destroy
  family-owned businesses that have taken generations to
  build up."
  
  A small group of Canadian lumber companies with multiple
  mill locations now controls more than 90 percent of
  western Canadian lumber production. Since 1990, this
  cartel has allegedly defrauded American independent
  wholesale lumber distributors, and by extension American
  consumers, by overstating their freight costs and keeping
  the records secret.; such secrecy led to the term
  "phantom freight." The Canadian mills' company-owned
  wholesale division, which compete against independent U.S.
  distributors, gain a significant advantage in quoting
  prices to U.S. consumers, critics charge.
  
  The U.S. Small Business Administration publication,
  "Anti-trust for Small Business," states that it is "illegal
  to use transportation methods as a disguised means to fix
  prices." But the Commerce Department has halted its hurried
  review of the phantom freight trade subsidy, and in one of
  the first instances of a foreign trade panel overturning
  U.S. law, a panel of two Canadians and one American (formed
  under NAFTA's "Chapter 19" dispute resolution mechanism) has
  overturned U.S. trade laws governing phantom freight.
  
  "Congress should direct the administration to negotiate the
  reform or elimination of Chapter 19 from the NAFTA," said
  national trade attorney Mark Benedict, of McLean, Virginia.
  "Under this system, international panels -- with foreign
  nationals frequently in the majority, are allowed to
  interpret and implement U.S. law, and their decisions have
  the force of law. Constitutional safeguards...are lost when
  such panels [made up of politically appointed career
  bureaucrats] replace U.S. courts."
  
  The illegal phantom-freight issue was subject of a lawsuit
  brought by an independent lumber firm, Rivendell Lumber
  Company of Denver, Colorado, that went bankrupt in 1991. The
  company sued 15 Canadian lumber producers, who settled out
  of court for an undisclosed sum that by one estimate reach
  $20 million. "This was a de facto admission of guilt," said
  the U.S. lumber distributor.
  
  In a related matter, an August 21 report in the authoritative
  Journal of Commerce, titled "Record U.S. deficit looms
  despite soaring exports," cited Commerce Department data
  showing a probable record trade deficit of around $110 billion
  by year's end. The report provides additional fodder for
  anti-NAFTA opponents; the administration continues to argue
  that NAFTA is needed to open overseas markets for U.S. exports.
  
  ===== Comments by MDOLAN@CITIZEN (MDOLAN) at 10/08/97 9:46 am
  
  
  
  ****************************************************************************
   /s/ Mike Dolan, Field Director, Global Trade Watch, Public Citizen
  
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